M322 – Village renewal 1 80 % EAFRD 20 % beneficiary Village 20 % Consultant "Foundation Pretty Village" Contract Brothers Bidder 1 subcontracts € € Bidder 2 Bidder 3 Earthworks 20.000 € + 100 % Buys toys 8.000 € + 30 % Installs 15.000 € + 100 % 2 Once? Twice? 10 times? 145 times 3 M312 – Creation of Microenterprises Multifix SRL – PL Forge for iron Paragon OfferSRL 1 Paragon Offer 1SRL Offer 2 Offer 2 Offer 3 Offer 3 4 Multifix SL - ES Forge for iron One client Multifix SRL – PL Owner: J. Dojewski Forge for iron Paragon SRL Paragon SRL Id e te ntic xt a s l l ca i t s Offer Fdaelnsxet2 I te Offers2 e Fal Offer se3 Fal Spanish product 5 Offer se3 Fal Other manipulations Too far… 6 Artificial creation of funding conditions Where? Rural Development Investment measures M121 – Modernization of agricultural holdings M312 – Support for the creation and development of micro-enterprises M313 – Tourism activities 7 Why? Funding limitations M312 – Support for the creation and development of micro-enterprises M121 – Modernization of agricultural holdings Max. eligible costs: 2 million € Max. funding: 40 % Once in the Programme! Max. funding: Up to 70 % of the eligible costs; max. 200.000 € Max. 200.000 € in 3 consecutive fiscal years! M313 – Tourism activities Profit-making: 70 % of eligible costs; 70.000 €/project Max. 200.000 € in 3 consecutive fiscal years! e at t S 8 Ai d e "d m im in " is State Aid "de minimis" Art. 2 Reg(EC) 1998/2006 Beneficiary receives 197.955 € - M312 - Beneficiary receives 84.000 € - M313 - ≤ 200.000 € ≤ 200.000 € 9 State Aid "de minimis" Art. 2 Reg(EC) 1998/2006 Beneficiary receives 198.944 € - M312 - Beneficiary asks for 84.000 € - M313 - 282.944 € 10 Temptation to circumvent funding limitations Art. 60 of Reg. (EU) 1306/2013 "Without prejudice to specific provisions, no advantage provided for under sectoral agricultural legislation shall be granted in favour of a natural or legal person in respect of whom it is established that the conditions required for obtaining such advantages were created artificially, contrary to the objectives of that legislation." Art. 4 (8) of Reg. (EC) 65/2011 11 Characteristics How? Creates Controls AgroOne Husband AgroTwo Wife Only client Under market price EAFRD M121: 900.000 € EAFRD M312: 200.000 € 12 Creates Controls Master Funding limitation AgroOne AgroTwo Only client Under market price 13 Slave Platform for new funding • Company split - but continued as one! Anton GmbH Anton & Bill GmbH • Same manager • Single accounting • Profit 50:50 to A & B Bill GmbH 14 • Separate projects - organically one! Mother Father Daughter 15 End of chapter 16 Red Flags for Irregularities and Fraud in the areas of high risk Red Flags • Indicators for fraud/irregularities • Not: Evidence • = "Element that something is unusual" 18 ? 19 Red Flags • • • • Indicators for fraud/irregularities Not: Evidence = "Element that something is unusual" Where Red Flag detected: Further verification of the entire file • Red Flags: Dynamic – from indication to suspicion (the more Red Flags, the more suspicion) 20 Producer organisations • PO purchases investment goods from one of its members or from a supplier with which one of its members is affiliated • Attention! All/most members of the PO belong to the same family 21 Fraud Hotspots EAFRD Investments Manipulated offers Artificial creation of conditions for funding 22 Red Flags for manipulated, non-competitive offers • Formal indicators • Structural indicators • Pricing anomalies • Anomalies in the identity of the bidder • Other anomalies 23 Formal indicators All offers or two out of three offers: Identical contents 24 Identical contents Tractor Deutz-Fahr Series 5G – 5105.4 75/102 kW/CV Air-conditioning Pneumatic seat Hydraulic 60ECO Tractor Deutz-Fahr Series 5G – 5105.4 75/102 kW/CV Air-conditioning Pneumatic seat Hydraulic 60ECO Price: 49.000 € Tractor Deutz-Fahr Series 5G – 5105.4 75/102 kW/CV Air-conditioning Pneumatic seat Hydraulic 60ECO Price: 49.900 € Price: 49.500 € 25 Formal indicators All offers or two out of three offers: Identical contents or Identical errors 26 Identical errors •Typographic errors 27 The quick brown fox jumps over the lazy dog. The quick brown focs jumps over the lazy dog. The quick brown focs jumps over the lazy dog. 28 All three offers or two out of three: identical errors •Typographic errors •Errors in name/address of beneficiary •Wrong brand or model names 29 John Deere Tractor 6MC John Dear Tractor 6MC John Dear Tractor 6MC 30 All three offers or two out of three: identical errors •Typographic errors •Errors in name/address of beneficiary •Wrong brand or model names •Wrong country of origin •Possible exception: Templates for construction works 31 Item 1 2 3 4 5 6 Work Type Foundation: DIN 7023 concrete slab 350 mm; Steel armour 25 mm; density P4 Drainage system for roof with 7 collectors R56 lateral type Power cabling 400 V 9A, diameter 28 mm, under plaster Prefab. Wall construction Doors fireproof Grade A3 with frame and armature Windows double glazing PVC white 125x90 cm Always identical 32 Unit Quantity Unit price Total m² 125 xx xxx m 82 xx xxx m 255 xx xxx 341 xx xxx pce 16 xx xxx pce 14 xx xxx Formal indicators - Checks and controls •Careful checks of offers •Side-by-side comparison •Sample checks of country of origin of equipment •Sample checks of existence of model 33 Structural indicators • Multitude of identical/highly similar projects • Same consultant(s) in a large number of these projects • Same (sub)contractor(s) in a large number of these projects 34 Pricing anomalies • Offers show unusual price patterns 35 Bidder A Item Item Item Item Item Item 1 2 3 4 5 6 Bidder B 700,00 1.256,23 552,25 488,23 4.588,26 556,23 Always lowest 725,50 1.355,77 560,64 578,36 4.642,87 572,99 Always in between 36 Bidder C 815,00 1.389,84 570,00 612,41 4.684,99 579,56 Always highest Pricing anomalies • Offers show unusual price patterns • Price differences between offers are linear 37 Lot Lot Lot Lot Lot Lot Lot Lot Lot Lot 1 2 3 4 5 6 7 8 9 10 Bidder A 12.542,26 17.278,41 22.958,55 9.261,30 117.289,35 7.412,36 89.577,00 13.244,20 31.557,33 45.789,22 + + + + + + + + + + 2 2 2 2 2 2 2 2 2 2 % % % % % % % % % % 366.909,98 + 2 % 38 Bidder B 12.793,11 17.623,98 23.417,72 9.446,53 119.635,14 7.560,61 91.368,54 13.509,08 32.188,48 46.705,00 % % % % % % % % % % Bidder C 13.043,95 17.969,55 23.876,89 9.631,75 121.980,92 7.708,85 93.160,08 13.773,97 32.819,62 47.620,79 374.248,20 + 4 % 381.586,40 + + + + + + + + + + 4 4 4 4 4 4 4 4 4 4 Pricing anomalies • Offers show unusual price patterns • Price differences between offers are linear • Price differences are identical amounts 39 Lot 1 Lot 2 Lot 3 Lot 4 Lot 5 Lot 6 Lot 7 Lot 8 Lot 9 Lot 10 Bidder A 12.542,26 17.278,41 22.958,55 9.261,30 117.289,35 7.412,36 89.577,00 13.244,20 31.557,33 45.789,22 Bidder B 12.793,11 22.623,98 23.417,72 11.946,53 119.635,14 10.060,61 93.088,54 13.509,08 32.188,48 39.366,79 Bidder C 17.793,11 25.123,98 23.417,72 14.446,53 119.635,14 11.780,61 85.750,33 13.509,08 32.188,48 46.705,00 366.909,98 378.629,98 390.349,98 + 11.720 40 + 11.720 Pricing anomalies • Offers show unusual price patterns • Price differences between offers are linear • Price differences are identical amounts • Price differences between offers and reference prices are linear 41 Reference price Bidder A Bidder B Bidder C 12,70 12,06 11,93 11,81 100% 95 % 94 % 93 % 42 Pricing anomalies • Offers show unusual price patterns • Price differences between offers are linear • Price differences are identical amounts • Price differences between offers and reference prices are linear • Price quotations for individual items differ by even amounts in numerous cases 43 Bidder A Item Item Item Item 1 2 3 4 Bidder B 700 1.000 550 5.500 800 1.200 560 5.400 44 Bidder C 900 Δ 100 1.400 Δ 200 570 Δ 10 5.300 Δ 100 Pricing anomalies Checks and controls • Side-by-side comparison of totals and individual prices • Use Excel • Numerical comparison of the prices (absolute and relative differences, differences to reference prices, etc.) 45 Anomalies in the identity of the bidder • Fictitious/invented company 46 General appearance of offers: Simplicity! • Simplistic layout of stationery, no logo • Standard font/simplistic stamp • Name of contact person not mentioned • Email account generic (yahoo, gmail, etc.) • Only mobile telephone number given • Telephone number not in country of establishment • No physical address, only P.O. box • Inexistent post-code or mismatch post-code/city 47 48 Anomalies in the identity of the bidder • Fictitious/invented company • Company exists but does not trade in the area required 49 qu e g lin o co l a tri s u In d 50 nt ? e i pm te h g u a Sl r e n i l s 51 rc o f c hi k ? n e Anomalies in the identity of the bidder • Fictitious/invented company • Company exists but does not trade in the area required • Anomalies in relation to the place of establishment of bidders 52 Too close… 53 Too far… 54 Anomalies in the identity of the bidder • Checks and controls • Internet-search for the company concerned • Check for plausibility of telephone numbers and address details • Google street view! • Check if other entities established at same address 55 Fraud Hotspots EAFRD Investments Manipulated offers Artificial creation of conditions for funding 56 Categories of Red Flags for the artificial creation of funding conditions Three groups: External/physical indicators Structural/legal indicators Business/accounting indicators NB! All indicators are about unusual proximity between companies that pretend to be independent! 57 External/physical indicators • 2 or more beneficiaries at same address • Identical or door-to-door offices • Shared facilities (e.g. same tel/fax/production) • Common storage of machinery/equipment • Shared commodities (water/electricity/heating) 58 Structural/legal indicators1 • One (or more) of interlinked companies has already received EAFRD investment funding • Equipment purchased under project only makes sense to complement equipment of another • Same person is manager of several interlinked companies • Owners/managers of several companies are spouses or family • Employees of one company are owners/ managers of another company 59 Structural/legal indicators2 • Same consultant for several EAFRD projects • Identical or highly similar feasibility studies or business plans • Companies give each other guarantees for cofinancing • Same natural or legal persons shareholders of linked companies • Owner/manager of one company has power of attorney for bank account of another company 60 Business/accounting indicators • Beneficiary company works exclusively for companies to whom it is linked (invoice trail) • Prices below market standards • No full evidence for cash-flow to pay invoices • Linked companies have identical or complementary business purposes • Single company has been split into two and both continue similar/complementary operations 61 Empirical experience Where funding conditions have been created artificially, usually one or more indicators from each category show up simultaneously Structural/legal indicators Business/accounting indicators External/physical indicators 62 EAFRD EAFRD M312: M312: 180.000 180.000 Comp A (06/2012) Shareholder: Mrs Smith Second customer O Offf fiicce e fiiccee O Offf Comp D Shareholders Comp B & Comp C Manager: Mr Smith First customer e icce ffffi OO Owner: Comp B Shareholders Mr & Mrs Smith Comp C Shareholders Mrs Smith's nephew & Comp B EAFRD M312: 200.000 € in 03/2012 63 EAFRD M312: 200.000 € in 02/2012 EAFRD M312: 180.000 Second customer Comp A (06/2012) Shareholder: Mrs Smith Of f ic e e f f ic O Shareholders Comp B & Comp C Manager: Mr Smith First customer Owner: Comp B O e ic ff Shareholders Mr & Mrs Smith Comp C Shareholders Mrs Smith's nephew & Comp B Comp D EAFRD M312: 200.000 € in 03/2012 64 EAFRD M312: 200.000 € in 02/2012 Thank you for your interest! peter.baader@ec.europa.eu 65
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